The Nile River runs through Egypt.

The California Public Employees' Retirement System last week sued the big three credit rating outfits for giving AAAs to three "structured investment vehicles" in which CalPERS invested $1.3 billion.  California Public Employees' Retirement System v. Moody's Corp., No. CGC-09-490241 (Cal. Superior Ct. July 9, 2009).  WSJ Law Blog post — with handy links to articles and the complaint — here.

CalPERS alleges that Moody's, Standard & Poors, and Fitch negligently misrepresented the soundness of the SIVs, which "collapsed in 2007 and 2008, defaulting on their payment obligations to CalPERS and resulting in hundreds of millions, and perhaps more than $1 billion, of investment losses for CalPERS."

The raters say they applied their usual standards and — hiyah! — gave their honest opinions about stuff that would happen in the future.

The latter point invokes a first amendment right to do that which Ralph Waldo Emerson proposed:

Speak what you think today in hard words and tomorrow speak what tomorrow thinks in hard words again, though it contradict every thing you said today.

Blawgletter has tried to get our mind around how the law should deal with widespread but willful suspension of disbelief.  Yes, the credit raters won huge fees from turning thumbs up to debt issues that proved, with slight jiggling, toxic.  Bad.  But — astonishingly — those who knew and said the Emperor had nothing on but his birthday suit couldn't break out of minority status. 

Should the raters get off scot free?  CalPERS doesn't think so.  What do you say?